Hello Jim Woolly, <<what do you see for future near-term prospects in Japan?>>
My knowledge of Japan is at the level of a casual passing observer, riding on horseback, at a fast gallop, at night, from quite far distance.
I do not have any Japanese securities in my portfolio Message 17888598 at this moment, but do have a ready line of Yen credit. I do not plan to draw down on the credit line anytime soon. My Japan-resident head of bond-trading friend advises me to ‘not short the Yen’.
My company does do some work with Japanese trading/finance companies in China, and I do pay attention to the usual news out of Japan for the sake of my own financial survival.
So, here it goes with the facts and just that:
(a)Japan is still expensive, by world standard;
(b)The Japanese population are aging very fast, ready to draw down their savings for golden years;
(c)They are tremendously wealthy and have financial staying power, even after 12 years of down-trending equity and real estate markets;
(d)They had only just recently cut back on spending on fun (outward bound travel is down 50% since 12 months ago);
(e)The Japanese banking system is not well, and there is an uncertain but large amount of bad debt kept alive on the books;
(f)The Japanese insurance industry is intimately invested in all things Japanese, including equity, real estate, and bonds;
(g)The Japanese government had the borrowing capacity to do substantial infrastructure spending, helping to mitigate the effects of deflation and domestic business depression so that, instead, Japan has been kept at recession level for many years;
(h)The US J6P has, with the help of Japanese financing, kept Japanese factories going strong;
(i)Japan imports oil, mostly from a place that may blowup;
(j)Japanese manufacturing companies are, willy by the nilly, relocating production facilities to China, or go out of business;
(k)The Japanese political system has been incapable of producing dynamic leaders of vision for quite some time;
(l)Japan is losing population.
So, again, summarizing the facts, the Japanese are getting old fast and dying off, giving away the use of their wealth at insulting interest rate, losing employment, missing customers, and maybe without useful political leaders.
And yet, because the Japanese account for 40% of the world’s savings pool, their capital movements will dictate financing rates and exchange rates around the world.
Beyond the facts, and trying to discern the truth, I believe what happens in the US determines many of Japanese actions and reactions, because the US is their biggest customer and their protector.
I believe Japan will have more problems if their J6P customers finally are forced to put scissors to credit cards, even as Taiwan, Korea and Japan continue to invest more manufacturing capacity and relocate more jobs to China.
More regional productive capacity, fewer jobs at faster clip in Japan, and fewer customers in USA, together with tepid and then imploding domestic demand, and financial ill-health may accelerate capital re-allocation. Capital re-allocation from where to where is the open question. At this moment, the US seems singularly intent on making its capital market distressful to the Japanese, making them re-live the bubble nightmares, American style, and printing the USD to weakness, even as Japan wants to print the Yen to death.
And, oh, almost forgot, a war in the ME will shake Japan in a bad way, via oil import, car export, and financial confidence channels, as well as heightening a sense of national insecurity given neighbors remembering old wrongs.
That is enough gloom and doom for one post.
At the onset of war in the ME, as there is nothing personal in matters of finance, I may draw on Japanese Yen line of credit, not to convert to assets denominated in other currencies, but to buy Japanese shares at a value that make sense on sustainable cash flow basis, taking account of domestic business and overseas investments.
For example, NTT may be OK at some price. Yen may go down through government printing, then the shares may rise due to increased cash flow, or Yen may go up due to capital repatriation, and the share price may stay level, allowing for an exchange rate gain.
At 1% borrowing rate, much room is made available for mistakes.
Chugs, Jay
Reference Japan’s role in the world today:
Message 17803400 |
